Recently in Finance Category

Fourteen years ago, Greenberg Traurig wasn't in the AmLaw 100, and today it's  #10. Their CEO during this entire period--until he stepped down lastweek--was Cesar Alvarez, now age 62. When he became CEO of the firm, it was a "small but prestigious Miami law firm known for corporate and real estate," according to this interview with the Miami Herald, and now is 1,750 lawyers in 30 offices with annual revenue of $1.2-billion.

But you know this. That's not why I'm writing.

When someone with Cesar's perspective and accomplishments steps down, it's worth listening. (Naysayers in the audience--and I know you're out there, admit it!--who think that the Greenberg Traurig model is intrinsically flawed, or that it's a flash in the pan, or that it's unsustainable, or that it's [insert miscellaneous pejorative here], just stay with me. We all know GT is a "polarizing" firm, in that people tend to love it or hate it. That's a topic for another day.)

So let's listen for a moment.

He said two things that struck me:

• "Without our blind compensation system [only Cesar knows what each partner earns], we never would have been able to build this firm;" and
  
  
• "Q: What do you know now that you wish you knew years ago?
  
  "A: How important the culture of a firm is. Sometimes people tell you how critical culture is. When I started, I said culture is a nice thing, but unless you drive success, culture won't mean anything. In fact, I know now that it is the opposite. You need to drive the culture, and culture will drive success."

How could a "blind" compensation system ever work? Isn't more disclosure, more "transparency," today's Holy Grail? Well, not so fast.  As Warren Buffett has famously said:

Our experience is that envy, rather than greed, is the key driver. If you give someone a $2 million bonus but their co-worker got $2.1 million, they're miserable. Of the seven deadly sins, envy is the most useless - it makes you miserable and you lose a lot of sleep.

I couldn't agree more (with Warren, if I'm not yet entirely convinced by Cesar). Few things are more corrosive than the envy of small differences, and we all know that the most visceral rivalries are local.

Does that mean the "blind," cone of silence, system is necessarily right for your firm? Not at all. The answer to that depends on the historic path your firm has taken. For sure, if it's always had an open and "transparent" system, now, and perhaps not ever, is the time to change. But if there's needless neck-biting and back-stabbing thanks to minimal differences in compensation, you might start thinking about migrating in that direction.

But enough on that.

The truly fascinating comment of Cesar's was his about culture, and its primacy over financial performance.

In this environment, people are who are considering lateral moves are not considering them because of, or certainly not only because of, financial performance, but almost exclusively because of culture--the compelling lack thereof.

But "culture" is too often confused with such bland bromides as "collegiality," "support," and "team spirit."

Evidently, that's not what culture means to Cesar, although he doesn't explicitly make the connection. Culture, to Cesar, is a culture of high performance.

First, as to internal expectations (and forgive the extended quote, but it's required to deliver the context and import) (emphasis supplied):

Q: If a young associate comes to talk to you about work life balance, what do you say to him?

A: When I was an associate I wanted to do as many deals as I could as a corporate securities lawyer. I worked a lot of hours: Monday though Sunday. Ultimately you have to sell two things -- for the client to trust you as human being and as a lawyer. If you haven't been at these deals you won't be able to sell yourself to the client. My point to young associates is you have to invest in yourself. What you get paid in the first few years is insignificant.

Today associates want the outside life. You have to remember they have to choose to lead the life of a lawyer, not be here to have the lifestyle of a lawyer. If they want lifestyle without being a real lawyer it will not work long term. It's a business that requires a lot of experience.

Q: Does it require major personal sacrifice to be good lawyer today?

A: Absolutely. Nothing has changed from that perspective. This is difficult profession, period. It requires a lot of time and effort. There are wonderful rewards, but you cannot substitute time and effort, not when someone else is putting in the time and effort.

Many associates still don't believe it. Now they are feeling the recession, the uncertainty. They have never felt the uncertainty. They have always been in a system that rewarded them again and again even when their hours were going down.

Q: Have you seen a change in attitude?

A: Definitely. They realize they are lucky to have a job and are more focused on what they need to do to have their career.

And second, in terms of client expectations:

Q: Do you think the legal profession as a whole will address client expectations brought about because of technology?

A: I think you have to be connected to the client all the time. We're in the business of solving problems. Problems aren't just legal issues. The great lawyers know how to handle problems. You want to be an advisor, not just a technical lawyer. You have to spend time understanding the business of client. You have to invest time and stay connected.

Finally, he has some shockingly clear-eyed observations, firmly grounded in economics, on what's going to happen to the next few years of law graduates and young associates. Specifically, when asked what's going to happen with the "tremendous number of unemployed lawyers," he responds with a clarity worthy of Adam Smith:

The economy deals with supply and demand. The adjusting mechanism is price -- what they will be willing to be employed at and what we can charge a client for them. Once that comes into balance again, you will have a different issue. [...]

If I were a young lawyer and displaced from a large firm, I would be going into one of new areas and be at the ground floor. I'd be learning energy policy and how it works. A few years from now you will become very valuable to law firms. You could come back at a high level if you focus on areas that are new. Firms will always be buying expertise.

So:

• Consider the corrosive effects of envy.
• Economics matter, but a high-performance culture matters more.
• And this profession demands hard work: Always has, always will.

And one last consummately clear-eyed Cesar-ism (from a personal conversation, not this article): When asked about the PPP arms' race, he cogently observed: "The only thing that matters is profits per me."

Thanks, Cesar.

The final agenda for the "Business of Law" program, this coming Monday, February 1st, at LegalTech/New York has just been released.

Please take a look here, and sign up here.

Hope to see you there!

If we were in Corporate Land, this would be the beginning of earnings reporting season, with the close of the customary calendar year-fiscal year for most of BigLaw.

It's too early to draw any statistically solid conclusions about what 2009 looked like overall, but sometimes a report raises so many more questions than it answers that it begs for a bit of comment, analysis, and "deconstruction," if you will.

That would surely appear to be the case with Sonnenschein's reporting.

Here's the headline, from The American Lawyer:

Profits per equity partner dropped 3 percent at Sonnenschein Nath & Rosenthal in 2009, according to figures reported by the firm late Thursday, and gross revenue was flat. PPP fell from $804,000 in 2008 to $780,000 last year. Gross slipped from $473 million in 2008 to $472.5 million, according to the firm.

So far, so innocuous. But if you read a bit more carefully, there's more to the story.

First of all, Sonnenschein added 100 lawyers from Thacher Proffitt effective January, 2009. To add 100 lawyers and be "very pleased" that gross revenue was flat must establish some new apogee or highwater mark in redefining "the new normal."

Second, the decline in RPL (using an apples-to-apples, same accounting method comparison, of which more momentarily) is -11%. This is can only be viewed as a quite negative indicator which suggests the firm, despite going through three rounds of personnel cuts in the past 18 months, may not yet be "right-sized" or certainly is not achieving pre-bust utilization rates.

Third, PPP dropped more than 12% in 2009 vis-a-vis 2008, and now we are told it dropped another 3%. But I understand that partners have been told that cash distributions to them are off 19%. This doesn't quite compute if PPP is actually down just 3%, unless something strange is going on with "cash."

Which brings us--fourth--to the weirdest and most inexplicable part of the Sonnenschein news (emphasis supplied):

The firm also restated its 2008 gross revenue numbers Thursday. Last year the firm reported $492 million in gross revenue in 2008, but yesterday Sonnenschein lowered that figure to $473 million. The firm attributed the discrepancy between the two figures to a change in accounting. Sonnenschein previously reported gross revenue on an accrual basis, but now reports it on a cash basis...

This is a firm founded in 1906, which has used Arthur Andersen and now McGladry Pullen as accountants. Why would this be the year they would change accounting methodology? I have no inside information as to why that might be the case, but it strikes me as oddly convenient that the change in stated 2008 gross revenue from $492-million to $473-million quite nicely enables them to say that revenue in 2009 was "flat" at $472.5-million.

Well, aren't revenues revenues? And isn't the cash basis more rigorous than the accrual basis? Yes, and yes.

First, I for one can't imagine advising a client to "restate" revenues, any more than I can imagine restating a budget once it's set. You can miss the budget or exceed the budget, but the budget is the budget. In my book, rewriting history just shouldn't be done, however tempting it might be to succumb to the desire.  States that do this are rightly accused of Kremlinology.

And second, as for whether cash recognition of revenues is more disciplined than accrual, the short answer is of course it is. You either have the check in hand by midnight December 31st or you don't. No squishiness or wiggle room to that. No woulda-coulda-shoulda.

But ponder for a moment the other side of the Income & Expense statement: Expenses. If you were recognizing expenses on an accrual basis (conservative accounting), but now you only recognize them on a cash basis (more aggressive accounting), voila, I can virtually guarantee you that reported profits will go up. (At least as a one-time shot, but that's a story for another day.)

Now, please understand: I have no brief against Sonnenschein in the least, and I wish the firm, its clients, its partners, associates, staff, and their many dependents all the best in these times of unprecedented difficulty.

Sometimes, however, you have to look behind the story. If there are innocent and plausible explanations for all of this, I welcome them and will publish any comments I receive as updates to this piece (assuming the writers' permission).

In the meantime, take what you read with a grain of salt. Or better yet, a nod to critical thinking.

The link to the American Lawyer article on Sonnenschein's reporting appears to be intermittently broken, so here's the original article. If I've offended "fair use," I apologize forthwith to the American Lawyer but the thing about the Web is that links should work.

The Am Law 100:
Sonnenschein Profits Drop 3 Percent

The American Lawyer

By Ross Todd

January 22, 2010

Profits per equity partner dropped 3 percent at Sonnenschein Nath & Rosenthal in 2009, according to figures reported by the firm late Thursday, and gross revenue was flat. PPP fell from $804,000 in 2008 to $780,000 last year. Gross slipped from $473 million in 2008 to $472.5 million, according to the firm.

"[The] bottom line for us is that we are very pleased with the performance in view of the substantial investment we made in January of 2009 to add 100 new lawyers from Thacher Proffitt," Sonnenschein chair Elliott Portnoy said via e-mail Thursday. Portnoy (pictured at right) was traveling and unavailable for a phone interview.

Last year marked the second straight year of lower profits at Sonnenschein; PPP dropped more than 12 percent to $804,000 in 2008. The firm also restated its 2008 gross revenue numbers Thursday. Last year the firm reported $492 million in gross revenue in 2008, but yesterday Sonnenschein lowered that figure to $473 million. The firm attributed the discrepancy between the two figures to a change in accounting. Sonnenschein previously reported gross revenue on an accrual basis, but now reports it on a cash basis to match the method it uses to report net distribution to partners. The change in accounting affects Sonnenschein's revenue per lawyer numbers. The firm reported Thursday a drop of 7 percent from $778,000 in 2008 to $722,000 in 2009. When using the numbers the firm reported last year, the drop in RPL is 11 percent from $808,000 to $722,000.

Part of the RPL drop can be attributed to Sonnenschein's boost in head count. The firm grew from 608 lawyers in 2008 to 654 in 2009. On January 1, 2009, Sonnenschein added 100 lawyers from New York's Thacher Proffitt & Wood, including 40 partners. The hires--the largest lateral group the firm has taken on--nearly doubled the size of Sonnenschein's New York office.

The Thacher Proffitt lawyers brought with them a $500,000 contract awarded in December 2008 by the U.S. Department of the Treasury to advise on its investments in the Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF). In March, Sonnenschein was chosen along with Cadwalader Wickersham & Taft and Haynes and Boone to advise the Treasury Department on its role in last year's auto industry restructurings. The auto industry contract carried a ceiling value of $8.59 million.

Sonnenschein, like many firms last year, also employed a number of cost-cutting measures. The firm cut associate compensation in June and announced in December that it would roll out a new merit-based associate compensation structure in early 2010. In September the Am Law Daily's colleagues at The National Law Journal reported that the firm cut about 30 lawyers, including 10 income partners--the third series of personnel cuts at the firm in an 18-month period.

This report is part of The Am Law Daily's ongoing Web coverage of The Am Law 100's 2009 financials. Results are preliminary. Final rankings and full results for The Am Law 100 will be published in The American Lawyer's May 2010 issue and on AmericanLawyer.com. The Am Law Second Hundred will be published in the June issue.

Why do I mention it?

Because I'm giving the keynote, called Economic & Strategic Perspectives on the Current Environment, and I'll also be moderating the three subsequent hour-long panels, on:

• Knowledge Management:  How technology can drive competitive differentiation.
  
  
• New Structures for the New World?:  Addressing what components of the conventional law firm business model might need to change, including:
  • Associate career paths
  • Alternative fee and billing models
  • Revenue and profitability models
  • Lateral recruitment, and improving the batting average, and
  • Law student recruiting--taking on the NALP menace
    
    
• Future Strategies:  If growth for growth's sake is no longer the universal solvent we once perceived it to be, what new strategies are plausible, effective, and needed in the marketplace? 

If I may say so, we've also recruited some top-drawer talent for the panels, including Harry Trueheart, Chairman of Nixon Peabody, Bill Bachman, Chief Operating Officer of Bingham McCutchen, Sally King, Regional Chief Operating Officer of Clifford Change, Aric Press of The American Lawyer, David Lat of Above the Law, Oz Benamram, Chief Knowledge Officer at White & Case,and Saul Rosenberg, Director, Knowledge Operations, McKinsey & Company--as well as many talented others.

Bonus for attendees:  Audience members will be given wireless polling devices allowing you to vote anonymously and see the results displayed in charts at the front screen in real time.    Accordingly, each session will feature several questions for the audience designed to enlighten, or perhaps uncover latent inconsistencies in attitudes.

There's no special charge for the event:  More info here. 

Hope to see you there!

Before it's too late to miss the brief window of opportunity for prognostications about the New Year, here's one more.

But first, let's back up a bit.

By almost anyone's lights, 2009 was dreadful for our beloved industry, even appalling. According to LawShucks, BigLaw laid off (read: fired) 12,196 people, of whom 4,633 were lawyers and 7,563 were staff. This, of course, ignores the reality that layoffs are surely under-reported.

Ugly enough, and the raw statistics don't remotely speak to the genuine, and too often borderline-tragic, realities of defenseless professionals finding themselves "redundant" (as the Brits either charmingly or bureaucratically term it), highly talented and expensively educated one and all. Worse, these people find themselves on the curb for reasons that either had nothing really to do with their performance or, if it was tagged to performance, for demerits that would probably not have had fatal repercussions a year or more ago.

For better or worse, that's not what I want to talk about here.

Adam Smith, Esq. is about the economics of law firms, and that's our topic.

Everyone, I believe, long ago wrote off 2009 in their own minds as far as financial rewards go.

• Associates are inured to salary freezes or even rollbacks.
• Staff expect the same.
• Everyone but everyone expects bonuses to be downsized compared to last year.
• Many non-equity partners, as far as I can tell, count themselves lucky to still be onboard.
• And of course, equity partners expect PPP to be flat to down anywhere from 5% to 25% or more. (You've heard the joke that "flat is the new up?" Chase Bank is rolling out a new campaign that "save is the new spend." Can you say "The End of History-- I don't think so."? This new mantra is foreign matter to the American DNA, and will be rejected by the host if it seriously attempts to implant itself in our expectations.)

Financial results for 2009 are, of course, just beginning to trickle out, and if past disappointing years are any guide--none of course remotely comparable to this--firms will not be rushing to punch the "send" button to announce their figures. Indeed, as is our wont, we will want the aircover of other firms announcing bad or worse numbers before we try to sidle our news into the media slipstream around 5:00 pm on a Friday before a holiday weekend.

But 2009 is not really on the agenda any more. We know about 2009 ad nauseum, we're done and we don't want, frankly, to hear much about it any more.

Which brings us to 2010.

I don't know about you, but I can take one bad year in stride. We all would prefer not to have to face a bad year, but as long as everyone in sight is more or less in the same boat, you can live with yourself, roll with the punch, and wax philosophical about the arc of a 40-year career.  Your spouse, family, friends, and professional colleagues will all understand.

Not so for 2010. People will want to know why 2010 will be different, and better. This is a potentially perilous topic.

A few fortunate firms will be reporting results that are on par or even better with 2008. But I predict the vast majority will be down on year-on-year comparisons, certainly in terms of reported PPP and even more certainly in terms of internally realized and distributed PPP. At too many firms, capital calls are up, distributions are delayed, and the future is unclear.

The most important question as we enter 2010 is very simple: "What now?" And "Why different and better?" This is the question that will be coming from your partners, associates, and staff as we grind out of the repercussions of late 2008 and 2009.

What's your answer?

The answer had best be persuasive, credible, and, perhaps most difficult, consistent with who your firm is and what has gone heretofore. You can't realistically turn the place around if that means making it something it never was, never ought to be, and isn't what your people signed up for.

In other words, the priority for senior management for 2010 is not just "making the numbers"--challenging as that will surely be--it's giving people a reason to believe.

Why will 2010 be better? How, exactly? How does this fit my image and vision of the firm? Not just how does it advance my career, but how is it something I can buy into, hearts and minds? "Trust us" as a response won't cut it.

And if you get this wrong?

I predict 2010, not 2009, will be the big year of shakeouts in the composition of the leading firms--and I mean that across the board, whether you define your peer group of competitive and therefore "leading" firms as the Global 50, the AmLaw 50, the AmLaw 200, or regional firms in your local market.

The dynamics are fairly simple: People wrote off 2009, but they're not prepared to write off 2010.  By "2010" I really mean the foreseeable future of their fortunes at your firm.  If this was the "Great Reset," then you should have re-booted, re-imagined, and re-invigorated your firm by about this time.  If you haven't, "2010" really means "as far as the eye can see."

In turn, people's  faith in how 2010 may turn out at your firm depends on their faith in the strategic vision of the firm. Is it credible? Ownable? Distinctive? Why, again, is 2010 going to be better than 2009?  

If you don't have a compelling answer to that, be prepared for bad news on the people front.  We often say it, but sometimes the obvious is worth repeating:  Within five or ten city blocks of your offices (all of them), there are probably two dozen buildings containing 50 or 60 elevator banks leading to the reception areas of major competitors.  How hard is it, really, for someone to choose another elevator bank?

At the outset, I promised you a prediction for 2010. At the risk of your revisiting this in January 2011 and finding what follows utterly wrong (Adam Smith, Esq., on principle, never deletes anything from our archives), it's simple:

• We will see more firms fail;
• And more "surprising" firms fail;
• More firms merge;
• And more"surprising" mergers

in 2010 than we have in a long long time.  Economics may be the proximate cause, but a failure of vision and belief will be the core cause.

Happy New Year.

Many have been the descriptors proposed for the period we've been living through since about the middle of 2007, but few strike me as more apt than "turbulence." Why?

• Turbulence implies unconscious, or at least unintended, forces at work causing the disruption;
• Turbulence is unforeseeable, both from a distance, and locally, while one is in the midst of it;
• Turbulence is unpredictable; it doesn't rise and fall in a convenient sine-wave pattern, it ebbs, flows, circles, eddies and creates water-spouts, becomes violent and quiescent.

And most importantly, it's almost impossible to "train for" turbulence. The best one can do is try to keep one's head while all around are losing theirs.

This brings me to Don Sull's recently published The Upside of Turbulence: Seizing Opportunity in an Uncertain World. Don is a professor of strategy at the London Busness School and--full disclosure--someone I count a friend. He also writes a regular column for The Financial Times.

Don begins by disabusing us of the notion that the current economic crisis is our first or our only encounter with turbulence. Instead, he posits that it's been on the rise for 20 or 30 years. By one measure (the likelihood that a firm will be knocked off its leadership position), turbulence increased three-fold. The frequency of currency or economic crises has increased four-fold.

What's driving this?

Primarily, the accelerating integration of the world. Technology now diffuses worldwide in utter disregard of "national" borders (what a quaint concept indeed, China's censoring of Google notably notwithstanding). According to Don, one-third of the world's population that was not heretofore part of the market economy has recently entered it.

How should leaders respond?

Let's start, perhaps, with how they should not--but how they typically do--respond. By digging in their heels.

Well, to be fair, we can be a bit more nuanced than that. Many organizations confronted with turbulence decide, perhaps not unreasonably on the surface, to dig down and do what they've always done best, only do it better.

So the world is changing a lot, you see the changes coming. You've got the data, McKinsey or somebody else helps you to get your arms around what's happening. And instead of changing what you're doing, you just step on the gas, spin the wheels harder, and hope to get out of the rut. Usually you end up digging yourself deeper.

This is what Don memorably calls "active inertia."

Another response is to try to focus especially hard on the telescope in order to predict the future, in the belief that if you just "squint hard enough" you'll be able to accurately anticipate the future.

Get real. (That's my advice.) Don is a bit more diplomatic:

"I'll be able to see through this foggy future. I'll be able to predict what's going to happen. I'll know what to do." That's just not going to happen. The record of people's predictions in business, or in any domain, is very, very poor. And as turbulence increases, the effectiveness of that approach decreases.

The final trap is trying to do what everyone else is doing. Now he's talking our language. As he succinctly puts it, if you're mimicking firms that are making the wrong responses, "it's unlikely that you're going to have a better outcome than they do." This observation of course is first cousin to Einstein's famous quip that the definition of insanity is doing the same thing again and again while hoping for a different outcome.

What, then, is to be done?

Be agile. Easier said than done, I know (and I've counseled agility myself). "Agility" is simply the ability to identify, and then seize, opportunities more quickly than your peer set. I've analogized it to running a race, where winners are dependent on native running ability, to be sure (but you have that, right?), but even more so on situational awareness of your competitors, seeing opportunities (a flagging competitor, or the fact that you're 200 yards from the finish and feeling strong), and taking advantage. But "seizing" the opportunity is apt, because in moments it will be gone.

We measure business opportunities in months or conceivably years, not moments, but the principle is the same.

First, you can be "agile" within your own operations: This is Toyota, or the Six Sigma god-head in general. Get smarter about what you do best, and do it better still.

Second, you can change your own firm's portfolio mix: Pull back from geographies and practice areas that may have outlived their usefulness (if they ever had a usefulness--topic for another day), and invest the saved resources in what you think the growth areas will be. Be attuned, in short, to opportunity costs.

Third, be strategically agile. Downturns provide, among other things, the opportunity to buy assets (office leases, most importantly talent) at below what-market-was a year or two ago. Be disciplined, be purposeful, but consider investing. Seriously.

Why? Don writes:

Many complex interactive systems--such as weather patterns, seismic activity, and traffic--follow what mathematicians call an inverse power law: the frequency of an event is inversely related to its magnitude. In turbulent markets, an inverse power law implies that companies face a steady flow of small opportunities, periodic midsize ones, and the rare chance to create significant value. Examples of golden opportunities include major acquisitions, transformational mergers, the opening of booming markets such as China or India, launching a breakthrough product like the iPhone, or securing hard assets on favorable terms during an economic crisis.

Given the unpredictable nature and uneven distribution of golden opportunities, a combination of patience (to wait for the right time to strike) and boldness (acting when that time arises) is crucial.

All this, of course, guarantees precisely nothing.

For one thing, how do you communicate the firm's strategic objectives to the partners, associates, and staff who will actually be the ones carrying it out? Don't you run the risk of inundating them with messages if you're trying to turn, relatively speaking, on a dime?

Well, yes.

All the more reason to stay focussed and decide very carefully about your priorities. Communicate those you truly believe in, in your gut. No more than three a year. Better, fewer.

But do not, above all, miss this opportunity.

A downturn brings hard choices into stark relief, provides an external rationale to justify difficult decisions, and offers "air cover" to reverse previous decisions. In the current market, senior executives should consolidate their major initiatives into a single list and make the hard choices needed to select a handful that are truly critical. To ensure that everyone gets the message, they should communicate the priorities throughout the entire organization, along with a list of initiatives that are no longer key objectives, to ensure that people do not waste resources on unimportant matters.

One final thought: economic crises can provide an ideal opportunity to invigorate the cultural transformation that is often needed to cultivate operational agility.

Cultural transformation? Indeed: That's where the rubber meets the road.

In the 1980's and 1990's, one often heard the only semi-facetious phrase that "investment bankers are short-term greedy, but lawyers are long-term greedy."  One of the few exceptions to "short term greedy" on the I-Bank side of the Street was always Goldman Sachs, which, under the leadership of people like John Weinberg, was the epitome of long-term greedy.

I was put in mind of this by a front page piece in today's New York Times, "As Goldman Thrives, Some Say an Ethos Has Faded."  Here's the gist.

Lloyd Blankfein has led Goldman Sachs since 2006, and "has surrounded himself with a tight circle of executives drawn from Goldman's trading operation."  The business model of Mega I-Banks has traditionally had two components, trading for the firm's own account, and counseling corporate clients on strategy, M&A, and so forth.  But if you believe the article (I do, fundamentally), this balance has shifted at Goldman:

Interviews with nearly 20 current and former Goldman partners paint a portrait of a bank driven by hard-charging traders like Mr. Blankfein, who wager vast sums in world markets in hopes of quick profits. Discreet bankers who give advice to corporate clients and help them raise capital -- once a major source of earnings for Goldman -- have been eclipsed, these people said.

To my way of thinking, the smoking gun is a 2006 change in compensation for measuring investment bankers' value to the firm.  That year, Goldman instituted banker "profiles," which are daily (yes, daily!) P&L's showing how much business its employees and clients are doing. As the article writes, this change--quelle surprise--had two effects.  First, Goldmanites focused on clients who might generate the most revenue in the very near term, and second, it "prompted bankers to fight more aggressively for credit for their deals." (Sound familiar?)

Regular readers know that I place great stock in compensation:  Read, incentives.  Econ 101, and Econ X01 through Y01, relentlessly teach the importance of incentives in molding behavior.  And the i-bankers at Goldman are surely smart enough that they don't need to be told twice how to bring home more of what they surely feel entitled to.

Here's another window on the change the firm may have undergone:

"Would John Weinberg ever be in this situation?" [offering vague apologies for "mistakes" leading up to the financial crisis], asked one former partner, referring to the legendary senior partner who ran Goldman for many years. "No way. He would have thought about the firm over 50, 100 years, not what people will get paid this year."

Since the modern Goldman emerged during the Depression, its executives have cultivated a ruthless professionalism tempered by what might best be described as Goldman Sachs Exceptionalism: a sense that Goldman stands apart from, if not above, Wall Street rivals.

This sense, strengthened by a tradition of government service among senior executives, runs deep inside the bank's headquarters at 85 Broad Street in Lower Manhattan. Indeed, from the day they arrive, employees are steeped in the firm's 14 principles. No. 1 is: "Our clients' interests always come first. Our experience shows that if we serve our clients well, our own success will follow."

If you perceive an analogy to Law Firm Land, the line forms to the left.

Surely, surely, your firm has stated core principles akin to Goldman's:  Put the interest of your clients first, and the firm will take care of itself.

But do you also have long-lasting origination credits?  And how important are they?

To what extent does your compensation model reflect a zero-sum game where one partner's hoarding gain is another's failure to collaborate loss?  Do you measure performance daily, weekly, monthly, quarterly, annually, or over three to five-year rolling cycles?

In other words, how short-term greedy are you and how long-term greedy are you?

I fear that too many firms became too short-term greedy in the past decade.

Were there reasons for this?

In hindsight, of course, we know that the reasons espoused at the time look more like pretexts or thoughtless obeisance to the common wisdom than they actually look like hard-boiled, unblinkingly analytical Reasons.  

• Why lend promiscuously to subprime borrowers?  Because housing prices only go up, never down.
• Why pinch clients for more immediate revenue with less regard to cultivating a long-term relationship?  (a) Because we're Goldman Sachs and we can; and (b) because we have eaten the fruit of the poisonous quarterly- and annual-results tree of knowledge.
• Why resort to financial acrobatics and structural contortions to boost your profits-per-partner figures for benefit of The American Lawyer?  Because no one wants to finish last in a beauty contest and because everyone else is doing it (and everyone else knows everyone else is doing it, so wink-wink).

Those that became short-term greedy are now faced with the consummate challenge of rebuilding their business model at the same time they need to re-educate their partners and their associates and re-invigorate a lost culture of client service first.  All while the "Great Reset" threatens to derail the entire train.

But if the design of your compensation system, evidently like that of Goldman's, encouraged short-term-itis, do not blame your partners.  Blame yourself.

Lloyd Blankfein

Update from a reader in the UK (December 22):

Fascinating and provocative as usual, Bruce. The question, though, is of course: is it possible for law firm management to be "long-term greedy" in the age of the lateral partner? Even public companies have institutional long-term shareholders who may exert some pressure to not throw the future out in the quest for quick returns. Law firms strike me as almost unique, in that the firm's talent are also the shareholders and can exert enormous pressure on management to do things their way; and, once you add a febrile talent market to the mix, you end up with partners able to effectively hold their firms to ransom: "short-term profit or I'm out of here". Of course, the Wall St law firms (ironically enough given what's happened to their clientèle) cling on to lockstep, relatively low levels of lateraling, etc. But any economist presumably knows "culture" is an inadequate bulwark against misaligned incentives

My recent column, What Makes Laterals Run?, has generated a most rewarding level of reader feedback, worthy of an update to the original column.

Reactions have literally come from around the world, and, with the permission of my correspondents (all of whom expect anonymity, an expectation I most willingly grant), I wanted to share a sampling with you and then elaborate on what further thoughts of mine they prompt. 

First, from a former partner in a couple of name-brand firms, with 30+years of experience under his belt in roles such as executive committee member, founding partner of various offices, and co-chair of his firm:

"Bruce, you definitely have this right. When I set up our new London office in 1999, I was able to recruit top laterals not based on our money offer (strong and fair but not the ridiculous offers of firms like [name removed to protect the firm so charged--Bruce]) but rather based on our business plan and specific suggestions as to how they could cross sell to our existing client base and strong practices in new emerging markets. You are seeing the same thing here."

So what I'm suggesting has been going on for more than a decade--at least among the more discerning firms and lateral partner candidates.

Second, from another globe-trotting and astute observer of our wondrous profession:

Long time since I've emailed, but I was struck by something amusing, maybe even ironic, in your post today on lateral partner moves.  Basically, it seems like lateral partner moves have now "caught up" with lateral associate moves. 

Clearly, there were associates who used to move upstream (think bankruptcy associates during the last wave), who used to move downstream (the classic, maybe now defunct, "work/life" balance move), and who "serially divorced" (as in an associate I knew who was at 3 or 4 different firms in five years).  But for a long time, there were also strategic associate moves -- the associates who could not fully "read" how the firm planned for their future and moved to a firm where they believed their odds for making partner would be clearer and more transparent.  If a 40-50 year old partner moves because they cannot discern their firms' plans for the future and, indirectly, their future chances for increased fame, glory and compensation, is it really that different from those associates who used to move due to uncertainty over their own future?

Regards,
[xxxxxx]

P.S.  Yes, my use of the past tense for lateral associate moves was intentional.  Depending on how long this Great Reset lasts (great name for it, by the way), I wonder when discussion of lateral partner moves will also move in to the past tense?

Interesting perspective comparing lateral partners' strategies with lateral associates' strategies.  All I can add is that, yes, "work/life balance" is "so last August," and that the insight that one thing both associates and partners may be seeking in a lateral move is greater clarity vis-a-vis where they stand with their firm.  In my original column, I stressed partners motivated to look around because they perceived a lack of clarity in their firm's strategic vision, but an equally strong motivation could certainly be lack of clarity from the firm about the partner's own long-run prospects.

And as for using the past tense?  Given that voluntary associate attrition has fallen to barely above 0%, I agree that the past tense is justified, at least until a technical-but-jobless recovery from the Great Reset becomes robust enough to reach the stage of actually creating net new jobs.  (Don't hold your breath on this one, folks; my own armchair guess is 2012.)

Third, a partner with a Magic Circle firm in Asia writes:

Great piece on laterals - and, I think your hypothesis is spot on !!! [...]  It is also very relevant to a major shift going on in the [local] market at the moment.

Finally, a periodic correspondent offers extensive, and very thoughtful, observations:

Bruce --

        In response to your recent post on lateral recruiting, I drafted below a couple thoughts.    My general view is that extensive lateral recruiting is the sign of real trouble at a firm.  It typically is a sign that a firm has been unable to develop talent internally, and/or that a firm is trying to build a practice in an area that is not a core strength of the firm.  Only where firms use lateral hiring very selectively -- where they are able to specify the precise characteristics of the ideal candidate, and have targeted that person based on a unique firm strategy (rather than blind desire to replicate more profitable, NY-based firms), can lateral hiring have success.

I agree with your basic premise -- that strategy matters in attracting and keeping talent.  I also agree that we are seeing like firms and like partners starting to come together (e.g., securities specialists going to firms with substantial NY practices that earn higher PPP). 

I have two questions:

(1) When will firms stop chasing laterals and start building talent from within.  Most successful organizations develop talent internally, rather than through lateral acquisitions.  For example, GE historically grew all its management talent within GE.  Good professional football teams obtain most of their best talent from the draft, rather than frequent trades. In the legal world, certain firms (such as Latham) develop most of their talent internally, and rarely look for lateral acquisitions.  Conversely, growth through acquisitions is often the sign of a weak company without any compelling strategy or vision (e.g., WorldCom).  Talent grown from within is more loyal, and is often cheaper and less trouble than the lateral who is frequently bought and sold (think Terrell Owens).   Today's managing partners appear to believe either that there is some "silver bullet" to be had through lateral hiring, or that they do not have time to develop sufficient talent internally to meet their profit goals. 

(2) When will firms start matching their lateral recruiting strategy to a firm strategy that is based on the firm's (and the market's) reality, rather than a desire to replicate the successful strategies of the top-20 AmLaw firms (who are mostly all in NY).  If your hypothesis is  true(that there is a migration of partners to firms that better "fit" their practice), one would expect to see a fairly quick rationalization of the law firm industry structure.  Instead, that conversion is happening fairly slowly (though I agree it is happening).  It seems to me that this is because firms refuse to accept their position in the market, and believe (as all firms do) that they are a "premier firm" able to attract top rates and to generate the most sophisticated legal work. 

As a result, most firms still shop for the same, or similar, lateral candidates (such as high-end securities, white collar, IP, and M&A practices).  Even if mid-tier  firms are successful at attracting the lateral candidate, those firms often cannot create any "synergies" with that lateral candidate, because they don't have the clients that might need the service, or because the firm's reputation does not support such a high-end practice.  And, the mid-tier firm will often pay at least as much in compensation as the lateral generates in profits.  Thus, there is no net benefit to the firm of bringing in the lateral partner.  Eventually, either the firm becomes disillusioned with the partner, or the lateral partner becomes disillusioned with the firm and concludes that he can be more successful at a different platform.  The upshot for the firm is that it invested in talent that did not stay with the firm -- a lost investment to the firm.  Now, if the firm's lateral recruiting were targeted to those areas where the firm was distinctive, and different from others in the market, the firm might be better able to hold onto the talent, and create potential "synergies." 

In other words, firms need to stop recruiting just for the sake of "growth," or to increase profitability, and instead invest in lateral growth only in those areas that the firm has identified as being necessary for its unique strategy (and only when that strategy is rationally tied to the market reality of who the firm is, and not who the firm would like to become).  Now, if firms were sufficiently well-run that they identified their strategy several years in advance, and identified the areas in which they needed expertise, they might even be able to help senior associates and partners gain the experience and develop the skills needed, and thereby avoid lateral recruiting in the first place.  But, most firms do not appear to have reached that point. 

So, what more have we learned?

I'm tempted to reiterate where I began the original column, by pointing out (confessing?) that "perhaps I don't write as much as I should about lateral partners."  Certainly this piece seems to have unleashed some extremely thoughtful reaction.

The reason you rarely see me writing about laterals is blisteringly simple:  I have long believed that the vast majority of activity on the lateral-pursuit-seduction-&-wooing front is fundamentally misbegotten.  Yet, every day of the week you encounter firms and their managing partners (well, at least you did....) who act as if the single most valuable activity they can engage in to lift their firm's fortunes is to pound the pavement for desirable laterals.  And Lord knows the headhunting industry has made a living off it; never let me be the first to assume that entire sectors of the economy are premised on systemic, enduring, and irrational market failures.  Yet I continue to believe that all but the most assiduously and astutely targeted lateral recruitment is a fool's game.  (Here I invoke the widely recognized folk philosopher Bob Dylan to explain my reticence to write about this topic:  "And don't criticize what you can't understand....")

But now that the genie is out of the bottle, I'm compelled to offer, or elaborate upon, a few observations:

• I continue to believe that on an industry-wide, macro basis, we are seeing a systematic sorting-out of talent as lawyers seek to match their skills to the most appropriate firm platforms.  $1,000/hour rates are not for everyone, or for every firm, but they most assuredly are for some chosen elect and a similarly selective handful of firms.  Economically speaking, the logic is compelling that those blessed souls and those firms on whom fate has showered its beneficence should get together.
  
  
• Conversely, as I wrote in the original piece, there's room in this world for lower-margin, more routine work:  This is a respectable, indeed admirable, sector of any rationally organized marketplace, and firms and individuals who know themselves should rush to satisfy this demand.  And no, I'm not being condescending; au contraire. 
  
  I would tell you in all honesty that I think two of the finest cars for sale today are the Toyota Camry and the Honda Accord.  Neither one remotely breaks the bank and while, admittedly, neither will pin your ears back with acceleration or stun your date into a state of befuddled worship, they are very gentle on the wallet, they start, stop, and go as promised, and you can ignore and abuse them for tens of thousands of miles without complaint.  Try that with a BMW and see how long it takes you to cry uncle tow truck.  Toyota and Honda have achieved something truly outstanding here.
  
  
• There are other reasons to cast a jaundiced eye on excessive reliance on lateral recruitment as a core "strategy," some of which I alluded to in my first piece and some of which our enlightened commenters have pointed out:
  
  
  • There will never be a substitute for home-grown talent:  Not at GE, not for the Yankees, and not for your firm.  To cite a home-town (NYC) firm that has a long but not rigid tradition of emphasizing up-from-the-ranks talent, Paul Weiss seems to be thriving even in these currently challenging times.  Pure coincidence?
    
    
  • In MBA Land, professors delight in teaching about and management gurus delight in writing about "KPI's," or "key performance indicators."  What is a KPI?  Well, it depends on what your company does, but if you're a retailer (think Amazon, or Dell), a KPI might be the number of inventory "turns" you can generate annually.  Another might be how fast you can collect cash from your customers before you have to pay your suppliers (both those firms, amazingly, have that metric in negative territory, meaning they collect their customers' revenues well before they pay their suppliers--you might want to think of that trick next time you're tempted to indulge a client who's 90 days late and wants to be 150 days late).
    
    But my secret suspicion is that, for every KPI, there has to be an evil twin:  Call them "KRI's," or key risk indicators, which are dials on the dashboard indicating you might be headed for the guardrail, or over it.  For law firms, one big KRI, in my book, is excessive and promiscuous lateral recruitment.  Yes, "excessive" and "promiscuous" are both fudge phrases, but I think you know where I'm going and I think you know it when you see it.  As I said originally, the best predictor of getting divorced is having been divorced.  This is nothing, really, other than the flip side of home-grown talent's loyalty.
    
    
  • Finally, vast is the economic literature demonstrating and recounting the phenomenon of the "winner's curse," a/k/a "buyer's remorse."  It's quite simple:  The winner of an auction (a bidding war for lateral partner talent, for Alex Rodriguez, or for Madonna) will be the firm that is closest to paying The Talent every last red cent The Talent can expect to marginally contribute to the firm.  Which leaves the firm with....you guessed it:  Nothing.

Do I suspect our fascination with lateral hiring and recruitment will go away any time soon?  No, no more than corporate America's fascination with the search for CEO-as-Saviour will end and no more, for that matter, than the all too well-chronicled proclivity of the ambitious and the striving for seeking out mates other than those individuals to whom they're married.

But as a long-term strategy, I can't really bring myself to endorse either tactic.

Now, what exactly is your firm going to do about it?

Permit me to suggest you start with the intellectually challenging and culturally slippery project of defining precisely your strategic advantages and what distinguishes your firm from your competitive set in the eyes of clients.

And a last word.  If you intend to go about defining the Unique Value Proposition your firm offers clients, it has to meet each of these criteria:

• It must be credible.  We are not all Skadden, Wachtell, or Slaughters.
• It must be ownable.  It must connect, in other words, to a visceral understanding of who your firm is and where you fit in the great Value Chain of Law Land.
• And finally, it must offer a benefit to the client.  Without this final component, I invite you to beat your breastplates all you'd like; it will matter not.

Then again, if all this sounds too hard, why don't you just make a reservation at an elegant restaurant for dinner with a potential lateral?

Clients coming to me--and they're coming to me as never before--seeking clarity on what this will all look like "on the other side" are usually, for starters, really asking "How worried should I be?"

Sometimes of late, to reduce the general anxiety level, I quip that "we're not the newspaper industry." I fear that this is occasionally taken as gallows humor, although I intend it as anything but.  What I intend it as is quite simple:  Perspective.

But what if we were the newspaper industry, or more broadly, the print periodical industry?  What then?

Actually, Booz Allen's Strategy & Business has just written about this very thing, in Reinventing Print Media.  Granted, much of it doesn't remotely apply to us (or even, being parochial, to Adam Smith, Esq., which never has been and never will be a print publication), but some useful learning nevertheless emerges.

Two trends have intersected to deeply corrode revenue for mainstream print media, the second of which is the familiar rise of digital media.  Essentially the only traditional publications that have been able to charge more than $0 for their online content are The Economist, The Financial Times, and The Wall Street Journal--all, of course, addressing a professional business audience with one-of-a-kind brand names.  Consumer oriented publications that can charge are as rare as hen's teeth.  They mention Consumer Reports and Zagat's,but I can't think of a single additional example, and even the mighty New York Times has had to reverse field on this score.  Whether the taking of a different set of decisions at the outset of the mass-market digital age would have made any difference is, at this point, academic in the most devastating sense.

The first trend, which many non-industry insiders are unaware of, is the accelerating migration of marketing spending towards so-called "below the line" activities.  "Above the line" spending represents classic paid media advertising; below-the-line is everything else, and everything else is now the bulk of spending, and growing.  (Like what?  Like in-store promotions, manufacturers' own web sites, loyalty programs, "viral" and word-of-mouth efforts, YouTube videos, corporate Facebook pages, etc.)

So what do the august gurus prescribe for our friends in the dead tree world?

First, the full menu, and then, what we might adapt to our purposes:

The first strategy is to develop deeper relationships with readers around targeted interest areas. This builds on a strength that has always been at the heart of publishing: Strong print brands enjoy a trusted relationship with their audience; readers are loyal to print publications because they provide high-quality content about specific interest areas. [...]

The second strategy is to tap into revenue streams beyond advertising and circulation.  [...]

The third strategy is to reinvent the content delivery model (with a particular focus on lowering costs) and to emphasize a "profitable core" of unique and brand-defining material  [...]

The fourth success strategy for the media company of the future is to innovate with new products and pricing models.

Permit me to suggest that all of ##1--3, if conceived broadly enough, can be useful to us, and only #4 lands at our doorstep with a resounding thud (largely, but not solely, because of the terminally vacuous jargon in which it's expressed).

One at a time:

#1, "develop deeper relationships with [clients] around targeted interest areas."  That sounds like something a lot of us already know to do quite well, thank you very much.  Consider:

• focused client seminars on new developments in areas critical to their industry;
• free "health checks" where you and a fellow partner or two might spend half a day discussing ways you've seen similarly situated companies get in trouble, and what could have been done to head things off;
• brief "secondments" of some of your junior team members to the client's offices for cross-pollination and insight into what drives day-to-day decision-making in their lines of business;
• and more, I'm sure, which you are creative enough to dream up.

Examples from ConsumerLand may help spur your thinking:

Procter & Gamble has built its own digital media assets in the home and beauty category, Nike targets runners and other athletes, and Diageo helps young adults find bars and nightlife. [...]

Hearst -- another leading magazine player serving a broad set of women's interests with titles such as Cosmopolitan, Good Housekeeping, Marie Claire, and Redbook -- produces Real Age, a Web site that provides health information and offers a test that evaluates more than 125 factors to determine a person's "real age." To date, Hearst has grown its database of women by more than 8 million registered users who have taken the Real Age test.

How about #2, exploring new "revenue streams" beyond the traditional sources?  Again, I think we know how to do this.  Instead of just defending your clients when they're in a dispute or advising them how to navigate a corporate transaction, how about offering training in compliance so as to help ward off some disputes to begin with?  (Ideally, start with disputes, such as employment litigation, which are fairly low on the food chain and only once you've demonstrated a track record there might you consider moving up the ladder.) 

Or, what is perhaps a more timely suggestion, given the inevitability of clients' sending massive e-discovery projects to vendors specializing in handling intensive document review projects in ways more cost-effective than throwing recent Ivy League law school grads at them, how about offering some creative suggestions about how you could help manage, supervise, and strategically guide those enormous "boots on the ground" efforts?  (You won't be hiring and paying the infantry anyway.)

#3 may be my own personal favorite.

Isn't this another way of expressing the mantra every firm purporting to have a strategic rationale would have offered you until very recently?  To do the "high value," "price insensitive" work?  This simply states it a bit more subtly and stresses the perspective of the client rather than that the firm:  "to emphasize a 'profitable core' of unique and [firm]-defining material."

From our friends, with my interpolations as to what it could mean for us:

"Print media companies need to employ a range of efforts, but first and foremost, they must focus resources on their "profitable core"  [of clients] and build from that base. The profitable core is the set of print and digital content [your firm's intellectual property, expertise, and know-how] that most drives audience [client] engagement around well-defined interest [practice] areas. It is only on those distinctive content assets that a media company can build a "right to win," competing for attention against marketers [non-law-firm competitors such as Thomson West or LexisNexis], user-generated content [in-house resources, including lawyers], and other media companies [law firms you compete against]. Identifying the profitable core requires thinking freshly about the zones or editions of a newspaper or magazine and eliminating sections that do not drive significant readership or advertising revenue [a/k/a rethinking your geographic footprint and practice area mix]."

The most important message of all, of course, is to abstract from the specific tactical or battlefield suggestions outlined in the Booz Allen piece or humbly suggested by yours truly, and to adopt the mindset of competing in a world where settled conventions about such things as associate career paths and the billable hour model are suddenly being called into question. 

A fellow named Aaron Shapiro, a partner in digital advertising agency Huge (which has clients including Ikea, JetBlue, NBC Universal, Thomson Reuters, Time Warner, and Walt Disney), puts it best:  He says this environment will require you to think as both startup and incumbent simultaneously.  "It will take aggressively fresh thinking," as he expresses it.

So no, we are not the newspaper industry.  But if you believe Booz Allen, even the newspaper industry ought to see reason for hope--conditioned on some "aggressively fresh thinking."

Not at all gallows humor.  Perspective.

According to the most recent fossil record discoveries, life on Earth dates back about 3,450-million years. But for about the first 85% of that time span, organisms were extremely simple, composed of individual cells, occasionally organized into colonies.  Pretty dull.

Then something striking happened, about 530-million years ago, which is now known as the "Cambrian explosion." For reasons not entirely understood--oxygen reaching critical levels in the atmosphere? more sophisticated predator/prey competition? an immediately preceding mass extinction? "co-evolution" of related species?--evolution came up with a brilliant invention: Mutli-cellular life.

Multicellular life, as expressed in the Cambrian explosion, is not just aggregate-cellular life.  It's organisms with structure, with layers, appendages, limbs conducing to mobility, eyes, ears, and dedicated noses, protective carapaces, offensive tools such as teeth and claws, and essentially the entire array of what we customarily think of as the Lego blocks that can go into making up modern-day and even prehistoric animals. (Something similar happened with an explosion in the diversity of land-based plants about 400-million years ago, in the Devonian period.)

This is a quantum leap.

A profusion of widely diverse body types and anatomical plans arose, some constituting direct predecessors to animal life as we recognize it today (for example, if it's mobility you're after, four limbs--not more, not less--turn out to be really useful). Many many other plans, almost certainly the majority, were less optimally adapted and now belong to extinct lineages--such as Opabinia, with five eyes and a nose like a fire hose, or Wiwaxia, an armored slug with two rows of protective upright scales.

Interestingly enough, the Cambrian explosion was sufficiently powerful, diverse, and creative that no design template for a modern animal post-dates it. In other words, structurally and conceptually, pretty much every animal we see had a recognizable predecessor dating to this period. To be sure, evolution can produce shockingly powerful advances given a few hundred million years, but the point is that it was the seminal moment in the creation of multi-cellular life, where "a thousand flowers bloomed." While many were proven more or less in short order to be false starts and dead ends, the point is that the intensity of experimentation led to some extremely durable and well-proven animal models.

Take a look (click to play the 25-second PBS video):

What has this to do with BigLaw?

My thesis is that since, say, around 1980, we've been living in an ecological mono-culture: We have all been one-celled creatures, in the sense that we have all had one and only one strategy: Growth.

Aside from our "mono-strategy" as an industry, we have had:

• Mono-associate career paths (8 years, plus or minus, of lockstep to partnership);
• Mono revenue models (the billable hour);
• Mono levers for increasing profitability (primarily, by increasing leverage);
• And mono techniques for gaining competitive advantage (primarily, lateral partner recruitment).

I believe we're on the cusp of our own "Cambrian explosion," where we may begin to see a wealth of experimentation with different business models.

If the Cambrian explosion of 540-million years ago is any guide, there will be a lot of false starts and dead ends, a/k/a extinct species and firms. But there will also be some far-seeing, fast-running, high-flying, incalculably intelligent designs.

Stay tuned for the next installment in this series.